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EU: May need to aid more states in financial trouble

  The European Union may have to extend its emergency aid to more countries from central and eastern Europe hit hard by the global financial crisis, the bloc’s monetary affairs chief said on Monday.

But further help might still not be needed from the EU’s fund for countries with balance-of-payment problems outside the euro area, and euro zone countries are less likely to require aid, EU Monetary Affairs Commissioner Joaquin Almunia said. “You can’t rule out that a country outside the euro currency might come to need this assistance,” he said at an economic conference in Madrid. “We don’t think we’ll get to this position.”

Hungary and Latvia have received €6.5 billion ($8.4 billion) and €3.1 billion respectively from the EU fund as part of wider packages backed by the International Monetary Fund to relieve pressure on their currencies and other assets. Some analysts and politicians speculate that Lithuania and Romania may be next in line for EU and IMF aid, but Almunia refused to discuss any names. “Right now, there are no other candidates,” he said.

The EU has only limited scope to help its members, although individual countries, alone or in groups, can agree on special aid measures outside the bloc’s legislation.

Austria has been lobbying for government aid for banks in central and eastern Europe, which are often units of western banks, but has so far won little support. The EU’s main tool of help for countries outside the euro zone is the balance-of-payments fund, which was raised to €25 billion from 12 billion last year.

Leaders of the biggest EU countries agreed on Sunday to seek to increase the IMF’s capital to boost rescue power, also for EU members outside the euro zone.


Almunia said euro zone countries were better off and less likely to need EU help, following speculation that Germany and other major European states would come to the rescue of the currency area’s members such as Ireland and Greece whose finances have been battered during the crisis. “With the euro zone the position is not the same, either in terms of public debt, foreign debt or the ability to react to this recession,” Almunia said.

The comments are some of the strongest yet by a leading European policymaker on the chances of collective support for ailing European economies. One possibility to help euro zone members would be for the 16-nation currency area to issue a common bond, although diplomats say Germany is against the idea.

EU sources told Reuters on Friday that the chairman of the Eurogroup of euro zone finance ministers, Jean-Claude Juncker, had proposed that the common euro zone bond cover the first 40% of overall euro zone government debt. But some central European countries fear a common bond would crowd out their issuances, creating huge problems in repaying and rolling over their debt.

Almunia also said he saw the upcoming G20 summit in London as a critical test for leadership during the financial crisis. He said countries had to push for a coordinated response. “There’s a risk the summit is not a success and we’ll find, at a very bad, hard moment during the crisis, uncertainty over who is at the controls, who is driving,” he said.

Almunia said the G20 had to reach decisions on coordination of financial market regulation as well as monetary and fiscal policy. “The alternative is protectionism. It’s true globalization has brought risks, but the biggest risk now is deglobalization,” Almunia said. (Reuters)